Does Extra Retirement Spending Follow A Consistent Aging Sequence?

Executive Summary

A new study from Sun Life Financial suggests that retirees may have a consistent sequence of extra spending goals throughout their retirement years. Of course, practicing financial planners have acknowledged for years that retirement spending isn’t perfectly level from year to year, but Sun Life’s new study suggests that there are some consistent patterns that can be gleaned.

Like what? First of all, not surprisingly, domestic and international travel is higher for retirements in their 50s and 60s and trails off for those in their 70s and 80s. Notably (but also not surprisingly), the data suggest that international travel tends to trail off earlier (for retirees in their 70s), while domestic travel spending tends not to drop significantly until the retirees reach their 80s. Hobby expenses are often higher in the early retiree years, as are new/second business start-up expenses, which trail off in later years.

Perhaps the most striking item in the study are discretionary spending patterns surrounding luxury items and charitable gifting. The study shows a very significant leap in luxury item spending for those in their 70s, almost double the spending in this area for those in their 50s and 60s, before it drops even more significantly for those in their 80s. In addition, the study shows that those in their 80s tend to have the strongest charitable giving activity, followed closely by those in their 60s. Logically, this makes sense – those in their 70s may realize that the retirement horizon isn’t as long as it once was, and that it’s “ok” to spend more on some luxury items, while those in their 80s who HAVE saved successfully may be finding they have more than they “need” and increase their charitable activities accordingly. Particularly given that the target demographic for the study was those who have at least $250,000 in investment assets.

Overall, I do have some concerns about the study’s methodology and how it generalizes results, most significantly that since this is a single snapshot, it’s not clear to what extent the study is measuring timing or generational differences, rather than an actual age progression. Until a study more accurately tracks a particular cohort throughout their 50s, 60s, 70s, and 80s, we can’t be as certain that this is really a consistent spending progression that can be anticipated (although it certainly does have some face validity at least).

Nonetheless, I have seen few studies that targeted these spending patterns as directly as this one did (Michael’s Note: subsequent research by Morningstar’s David Blanchett has since delved further into the topic), so it certainly reflects some interesting new ground. I’ve never seen a study that explicitly suggests clients go through a consistent retirement spending progression from travel to luxury items to charitable contributions as they proceed through their 50s, 60, 70s, and 80s.